Here’s a Bolder Neighborhood Housing Plan

March 17, 2008

By Sam Staley, Ph.D.

Indianapolis, like other big cities in the Midwest, is straining under the weight of abandoned homes. Nearly 7,000 abandoned buildings litter the landscape of the city’s most hard-pressed neighborhoods, and the Indianapolis Housing Agency and Mayor Greg Ballard deserve credit for trying to take the bull by the horns. Unfortunately, their recently announced initiative may not be bold enough.

Realizing record foreclosure rates were sinking the city’s housing market, the housing agency has proposed having the city buy foreclosed homes from the federal Department of Housing and Urban Development Development and then sell them to neighborhood development agencies. The goal is to have the homes renovated and resold at affordable prices to home buyers. Indeed, In cities across the nation, nonprofit neighborhood associations have been at the forefront of developing affordable housing in central cities.

Yet, Indianapolis can be much bolder. Sherron Franklin, the former councilwoman whom the mayor put in charge of the initiative, could be given the authority to use market incentives to create a model for cities across the nation.

The problem Indianapolis faces, like other major urban centers, is too much housing of the wrong kind. That’s one reason homes prices are so low compared with outlying suburban areas. These low prices, and the low-income consumers to which they cater, squeeze profits margins to the point that individual developers and builders can’t make enough money to justify a major investment or commitment.

Again, Indianapolis is in a position to turn this around in a revolutionary way.

Rather than sell the foreclosed and abandoned homes as individual units, the city should use this unique opportunity in the housing market to consolidate the properties and sell them as a block. Rather than offer neighborhood groups one house, or several houses scattered throughout these neighborhoods, the city could offer them as one property. This gives developers, whether private for-profit or non-profit, more opportunities to make the project financially viable.

Then developers can think in terms of larger scale projects that might include a mix of residential and commercial units, a mix of different kinds of housing units — or the property might be redeveloped based on its current use. The low profit margins on individual units can be aggregated over the entire project, or even increased by allowing higher valued commercial uses. Developers can think “urban village” rather than low-income home. For the first time in decades, developing in poor neighborhoods might hold the promise of profitability. The key will be to consolidate enough parcels to create a large enough threshold to make this attractive.

Moreover, since the properties being transferred are already in foreclosure, the city and private developers won't have to worry about violating property rights through eminent domain. The deeds will be clear. In fact, the potential for realizing higher property values should make it easier to acquire nearby properties or secure the blessings of neighbors.

A critical part of the success of such a program would be to create large enough bundles of property that experienced developers would take this opportunity seriously. They should also be market-rate housing units.

With the right leadership, an Indianapolis program could become a model for housing policy for the nation’s mayors by turning blight into a bright beacon of urban revitalization, one based on economic realities rather than political good intentions. Samuel R. Staley, Ph.D., is an adjunct scholar of the Indiana Policy Review Foundation and director of urban and land-use policy for the Reason Foundation. He is considered a national expert on housing policy with professional articles appearing in publications such as the Wall Street Journal, Los Angeles Times, Journal of the American Planning Association, Urban Land magazine and Planning magazine. Contact him at sstaley@inpolicy.org.

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